How Does New Zealand Regulate Forex Brokers In The Country
The regulations around Forex trading in New Zealand have developed hugely over the last few years. As a result, Forex trading in New Zealand is quite unrestricted, while also being safe at the same time.
The FMA (Financial Markets Authority) is the regulatory organization for financial activities in New Zealand. FMA has managed to shift the economy towards a more reliable and responsible environment, coming from a history of adversity and economic recession.
Today, trading Forex in New Zealand is characterized by low restrictions, efficient control measurements, and high security. This makes the country’s financial brokers ranked among their peers in Australia, Europe, and the United States.
Best New Zealand Forex Brokers
How New Zealand Forex Brokers Became Reliable
Global recessions, as well as scam scandals, have slammed New Zealand’s economy over the years. This has opened the door for many illicit trading activities to take place, casting a bad image on the country’s financial markets, that no trader wanted to get involved in.
Scammer FX brokers used to enjoy the lack of regulations and turned the country into a hub for illicit financial activities. The Securities Commission of New Zealand, the previous regulator of the country, was unable to respond to these occurrences.
Later, the country has eradicated the former regulator, and now New Zealand Forex brokers are controlled by the Financial Markets Authority. This regulator has become more effective in terms of overseeing the financial activities in New Zealand.
FMA has contributed a lot in improving the national economy by taking care of the domestic issues related to financial and Forex trading. By imposing very strict regulations on Forex trading, the country has managed to overcome the challenges it has faced.
The new regulations include a mandatory reporting program, adopting a code of conduct, and new disclosure requirements that set the country’s financial license at a top-tier level.
The reforms have also witnessed the introduction of six types of licenses, these are: crowdfunding services; peer-to-peer lending services; managed investment scheme managers; independent trustees; discretionary investment management services; and derivatives issuers
FMA keeps updating the policies for the regulated Forex brokers in New Zealand, and just recently it has issued the “Financial Advice Provider” license for any financial institution offering a financial advisory service.
The new requirement entails that in order to be qualified for financial advisory, a financial institution shall be working under the license. Giving the retail traders the opportunity to access only high-quality financial advisories.
The Current Regulations for Forex Trading Brokers
The trading environment, specifically regulations about Forex trading, has changed dramatically and quickly in the country. The local trading market has transformed from having relaxed regulations to a strictly regulated market. This was kind of a shock for local brokers, as many of them failed to quickly adapt to the changes.
Regulations in New Zealand
The newly introduced Financial Markets Authority achieved great success in regulating financial services. FMA set clear-cut rules for the Forex trading platforms in New Zealand, to ensure the trader’s security of funds, and the legal conduction of business.
Using the leverage under the FMA is uncapped, and brokers can offer up to a 1:3000 multiplier on deposited capital, giving the FMA regulated Forex brokers an advantage over some brokers that have limited leverage usage.
Likewise, there are no limitations on offering bonuses, any FMA regulated FX broker can offer any type of bonuses and monetary awards, unlike brokers regulated by CySEC for example who face limitations in offering bonuses and some cash rewards.
However, later developments have deemed the regulations to be harsh because they started suspending every Forex broker that was not operating legally, as well as heavily penalizing them. In fact, even some of the righteous ones had their business foreclosed.
It might be fine to cease the operation for a non-FMA licensed broker, but even the licensed ones that were conducting their business lawfully, had their businesses suspended. The reason was that they could not swiftly adjust to the new regulations.
This has gone way too far and many legal and reliable Forex brokers had their licenses revoked. Some of the businesses even closed due to the overly strict regulations, knowing that would escalate another problem since dozens of traders have invested their money with these reliable brokers.
New Zealand vs International Regulations
The regulations that were introduced by the FMA were intended to take the Forex trading market in New Zealand at the level of countries such as Australia, the UK, and other European countries. To do so, the government has consulted with financial institutions locally and regionally.
However, some regulations remained different, such as the maximum leverage. For example, it is restricted to 1:30 in the EU, while Forex traders in New Zealand can enjoy leverage up to 1:3000 without any limitations.
Another difference is the minimum deposit requirement. While most brokers in European countries and offshore require a minimum deposit of $100 or $250, the regulated Forex brokers in New Zealand will let you trade with any amount even starting from $1.
If the market moves in an unexpected way, it might harm the broker, and even could lead some brokers to default.
Such an event means that traders lose all the money they have invested with the broker since the broker has announced bankruptcy, and cannot pay the money back to the traders
Some licenses include a compensation scheme, such as the FCA which reimburses the trader loss up to GBP 50,000 when the broker files for insolvency.
However, Forex traders in New Zealand do not have the same support from the FMA, as the FMA does not compensate any amount of money for the traders if the broker goes bankrupt.
Things To Avoid While Choosing a Forex Broker in New Zealand
The extensive regulations adjustment has introduced a sophisticated Forex trading platform in New Zealand on a global level, however, there are still some drawbacks that make any trader think twice before trading with a New Zealander broker.
Even the best Forex brokers in New Zealand can be slammed by the strict regulations. This can cause them to operate at a loss or even go out of business. In some cases, they might get their business license suspended just because they did not have enough time to comply.
And if a Forex broker in New Zealand announces bankruptcy due to the hard rules, there is nothing that can help their clients.
The regulatory authorities do not bear any responsibility if a Forex broker in New Zealand goes out of business, and unlike the FCA, there are no compensations guaranteed to protect the funds of the traders.
The established regulations were designed to cut down financial crimes and Forex scams that used to exist in the country, but with the factual occurrences, many Forex brokers are moving offshore, offering similar services for New Zealand FX traders.
It could be hard to forecast the development of the regulations in New Zealand because the top Forex brokers in New Zealand have addressed the government about the tough implementation of the rules and that more flexibility is needed.
Despite the demands for rule adjustments to protect the wellbeing of the traders and the broker alike, we do not see any changes taking place in the FMA.
Nevertheless, the NZ forex brokers are highly reliable, and many investors are safe to trade currencies with them. As a result of strict regulations, brokers’ reputation is on a higher level, compared to the conditions before the introduction of the FMA.
If a trader is looking for an FX broker in New Zealand, there is really nothing much to worry about. You just need to find a broker that has been in the market for quite some time, since the new ones are still getting introduced to the regulations and there is some time needed for adjustment.
Benefits Of Choosing Forex Brokers From New Zealand
Despite the deviations the regulations have created in New Zealand, it is still a good idea to invest with a Forex broker in New Zealand. It is clearly regulated and very reliable as the FMA tries its best to fight financial scams and fraud.
All the regulated Forex trading brokers in New Zealand are required to have their business registered with the Financial Services Complaints (FSCL) and the Financial Service Providers Register (FSPR), and both operate under the umbrella of the Financial Markets Authority (FMA).
Thus, any Forex trader can look up the name of the broker in the registry of the FSCL, FSPR, and the FMA, to check if the broker is legitimate or not. This is a huge step towards a more transparent and trustworthy financial services environment.
Forex traders in New Zealand enjoy relaxed restrictions in terms of leverage, where they can use uncapped leverage up to 1:3000.
While leverage is used by many traders, there are some risks associated with it as well. This is especially true when talking about such high leverage. Leverage can increase the profits that you make, as well as your losses.
Another benefit of trading in a Forex trading platform in New Zealand is the low minimum deposit, where any trader can start with basically any amount. Even starting with $1 to open a position is possible, something that many new traders choose.
In addition to that, traders can find the trading platforms that supports every payment and withdrawal method, to make it easier for all investors to open trading positions in any financial market.
New Zealand does not put any restrictions regarding the movement of capital inflow or outflow, as long as it complies with the anti-money laundering acts, making it easier for traders to invest in Forex brokers inside and outside New Zealand.
FAQ About New Zealand Forex Brokers
Is Forex Trading Legal In New Zealand?
Yes, it is regulated by the Financial Markets Authority (FMA). And every broker shall register their business in the databases of the Financial Service Providers Register (FSPR) and the Financial Services Complaints (FSCL)
The regulations are very strict against financial scams and if the government suspects any illicit activities, that will result in the suspension of the business license of that broker.
Is Forex Trading Tax-Free In New Zealand?
No, all the traders are required to pay tax on their income from Forex trading. The tax rate is 33% of the trading income.
What Is The Minimum Deposit To Trade With An New Zealand FX Broker?
Forex traders can start with even $1. Since there are no restrictions on the amount to be traded, many new traders prefer starting as small as $1 to avoid the risk of losing their capital.